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July 15, 2014

20 Best Ways to Fix Dodd-Frank Act

Bipartisan Policy Center panel offers ways to ‘improve’ Dodd-Frank, the financial reform law, signed into law four years ago

Former Sen. Chris Dodd, center, with President Barack Obama and former Rep. Barney Frank. (Photo: AP)

With the four-year anniversary of the Dodd-Frank Act’s passage into law only days away, former Sen. Chris Dodd, D-Conn., said Tuesday that he believes the financial reform law that bears his name is “working pretty well,” and he warned lawmakers to be “extremely cautious” in reopening the law to changes.

Yet the Bipartisan Policy Center offered several suggestions for lawmakers and regulators.

Speaking at a meeting held by the Center in Washington titled “Dodd-Frank at Four: Making Progress, Meeting Challenges & Finding Solutions,” Dodd — who served in the Senate for 30 years and was chairman of the Senate Banking Committee — conceded that by “no means is Dodd-Frank a perfect law.”

He said that the “political, financial and social environment today is vastly different” than it was when Dodd-Frank was crafted and passed into law on July 21, 2010, “in the aftermath of the worst financial crisis in history” and that “opening up of the law” today would create a “Pandora’s box” and “cause more harm than good.”

Eugene Ludwig, founder and CEO of Promontory Financial Group and a former comptroller of the currency, agreed in his remarks at the BPC event that Dodd-Frank “has made the financial system safer and more stable,” adding, however, that the law doesn’t entirely mitigate the risk for “issues down the road.”

Dodd, who’s now the chairman and CEO of the Motion Picture Association of America, said that because of Dodd-Frank, “the sense of confidence” in the “economic well-being and soundness of our nation’s financial institutions is returning.”

He added, however, that “we’re not entirely out of the woods yet,” noting that the rulemaking process at agencies “has slowed,” with agencies like the Securities and Exchange Commission having “far too many rules to implement.”

But Dodd expressed disappointment with what he said is a “purposeful lack of funding” for the Commodity Futures Trading Commission and the SEC by opponents of Dodd-Frank. He said a “goal” of his during the crafting of the law was to ensure self-funding for both agencies, and that the continued lack of funding starves the agencies’ “ability to do their jobs and places the country at risk.”

As to why Section 913 of Dodd-Frank gave the SEC the option to create a uniform fiduciary standard for brokers instead of mandating such a rule, Dodd said that the provision was made “optional because I was faced with a problem: if it was more than optional, the bill would die.” Because of the interest and debate surrounding the fiduciary issue, Dodd said, “we did leave” that decision to the SEC.

Dodd added: “I’m watching what they [the SEC] will do [regarding a fiduciary rule for brokers], and whether they will have the resources to do it, I can’t predict.”

The BPC, which launched a bipartisan financial regulatory reform initiative in fall 2012 to propose changes and reforms to Dodd-Frank, has released a list of solutions for regulators and lawmakers on ways to “improve” upon the law. Since its inception, the initiative has proposed 100 recommendations, with more than 20 being adopted by regulators, but none by lawmakers.

Read on to see the top 10 solutions that the BPC says regulators and lawmakers should implement to improve Dodd-Frank.

Top 10 Solutions for Regulators to Improve Dodd-Frank:

Create a Consolidated Exam Force: Prudential regulators should improve regulation by establishing a pilot program for a common bank examiner pool that provides for a unified examination and reporting process.

Increase FSOC Transparency: The Financial Stability Oversight Council should allow market participants to make more information decisions by releasing further information about its decision-making process, beginning with more detailed minutes similar to what is reported by the Federal Open Market Committee.

Set SIFI Bail-In Rules: The Fed should make financial institutions safer and processes for market participants more predictable by setting long-term debt holding requirements that will better enable large financial institutions to absorb losses.

Converge Resolution Planning Processes: The Federal Deposit Insurance Corp. and Fed should use exisiting authority to help move toward a process to wind down too-big-to-fail institutions without cost to taxpayers by converging the living will and single-point-of-entry processes.

Implement Volcker the Right Way: Agencies should take account of real-world conditions by coordinating implementation of Volcker Rule regulations in a way that is phased-in and updated iteratively based on data and metrics.

Improve CFPB Process: The CFPB should provide greater opportunity for input from all stakeholders by pursuing more policies through the rulemaking process rather than through individual orders and guidance.

Clarify Orderly Liquidation: The FDIC should make the resolution process more predictable for investors, debtors, and other stakeholders by issuing a policy statement on the single-point-of-entry strategy, including a statement that the strategy will be the presumptive path for resolving failed institutions.

Assess International Impact: The FSOC should strengthen the global financial system to improve coordination among U.S. and international regulators by conducting and assessment of the cross-border impacts of Dodd-Frank’s rules and regulations.

Coordinate Capital Markets Regulation: The CFTC and SEC, two agencies with at times overlapping and blurred lines of jurisdiction, should improve coordination between them by holding joint board meetings.

Improve CFPB Data Collection and Storage: The CFPB should enhance the quality of its data security for institutions and consumers. It should also improve coordination internally and with other regulators on data requests.

Top 10 Solutions for Congress to Improve Dodd-Frank:

Raise the SIFI Threshold for Banks: Focus regulatory resources on the largest institutions that pose the greatest potential systemic risk by moving the asset size threshold for enhanced supervision of bank holding companies from a hard and fast $50 billion limit to a more flexible $250 billion level.

Create New Bankruptcy Authority: Provide another strong tool to help end “too big to fail” by amending the Bankruptcy Code to make bankruptcy a viable alternative to Dodd-Frank’s Orderly Liquidation Authority.

Tailor Standards for Non-Banks: Provide more appropriate regulation by ensuring the the Fed can properly set different prudential standards, including capital requirements, for nonbanks tha are subject to enhanced supervision.

Align Too-Big-To-Fail Authorities: Better coordinate the process to wind down failed financial institutions without cost to taxpayers by aligning living wills under Dodd-Frank’s Title I with the reality of Orderly Liquidation Authority under Title II.

Fix the Swaps Push-Out Rule: Avoid conflicting regulatory approaches by postponing the effective date for the swaps push-out provision, which would require banks to move all derivatives into nonbank affiliates, pending an assessment of whether the Volcker Rule fixes the problem.

Improve the CFPB: Provide more consistent oversight of consumer lending activities by granting the CFPB authority over auto dealer lending activities and better oversight of the CFPB by assigning it an independent inspector general.

Make the OFR Independent: Improve the ability of the Office of Financial Research to “call it like it sees it” and “sound the alarm bell” on systemic threats by making the OFR a truly independent agency outside of the Treasury Department.

Create a Single Capital Markets Regulator: Reduce confusion, turf battles, and regulatory gaps in capital markets regulation by merging the Securities and Exchange Commission and the Commodity Futures Trading Commission

Establish a Federal Insurance Charter and Regulator: Protect Taxpayers and avoid bank-centric regulation of insurance companies by creating an optional federal charter that would be mandatory for SIFI insurance companies, and a federal insurance regulator to oversee firms holding that charter.

Ensure Independent Funding: Give independent financial regulators the resources necessary to implement financial reform and make them less susceptible to political pressures by establishing independent funding sources for all agencies and removing them from the congressional appropriations process.

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